Federal Reserve Board Data Confirms Failure of Politicians and Economists in Aftermath of Great Crash

In the immediate aftermath of the Great Crash, Americans rightly looked to our politicians, and the economists who advise them, for help. Their response was to follow the same foolish theories that got us into trouble. They rescued the rich, and made life miserable for the rest of us.

Now we have a good handle on the outcome, and the picture is ugly. In March, the Federal Reserve Board released a preliminary report on the damage done to consumers by the Great Crash. Here’s what it says about the impact on household net worth:

The mean (median) fell from $595,000 ($125,000) in 2007 to $481,000 ($96,000) in 2009.

P. 8. That is a staggering fall across the entire range of households. People are going to have to save a whole lot of money to make up for that loss, between now and retirement. Take a look at the detailed information given in Table 2. Aging baby boomers, ages 55-64, saw a huge decline in wealth. Almost 62% lost wealth. The median loss was 19.6%. At the 25th percentile, there was a loss of 46.6% of wealth. That lost money was our hope that we wouldn’t have to move in with our children in our old age. We need to replace it, diverting more money from current consumption into savings.

And don’t forget, we also have to save up a bunch of money to make up for the coming cuts to Social Security and Medicare demanded the deficit hawks of both of the corporate political parties. Here’s a handy chart, showing how much that might be for families in different situations. All of that money will have to be diverted from consumption and into savings.

The news on the wealth front is distressing. For many families, the home was to be the source of wealth for themselves, and hopefully to provide something in the way of an inheritance for their children. Housing prices continue to sink, falling to 2002 levels. For many families, there will be nothing for the next generation, and we will be lucky not to be a drain.

Suppose you have some money. How can you put it to productive use? Bankers aren’t paying interest because they can get free money from Ben Bernanke’s Federal Reserve. Corporations can borrow from banks at low rates, get deductions for interest payments, duck all taxes, and float nicely along with their cash cow divisions. They don’t need your pathetic savings. You have no realistic hope for income from all that scrimping and saving.

Retirees get no interest, and precious little return from the stock market, and who knows what will happen to their pensions, if any, and their Social Security and Medicare. Costs rise, and they spend what they have not to move in with the kids. Their savings get sucked into the pockets of the rich who aren’t going to invest it in productive activity in the US. That means no inheritances for you, Gen X. Of course, that isn’t true for the 8.4 million millionaire households, who aren’t going to have to worry, and neither are their children.

Add all the money we need to save to all the money the unemployed and underemployed aren’t spending. Consumer spending is about 70% of the economy. Where is consumer spending going to come from? With no prospect of a real increase in discretionary consumer spending, why would anyone invest in productive activity that creates jobs? What little is produced today is enough to satisfy the needs of the few people with disposable income.

At what point will it dawn on the President and his economic policy team that he won’t be reelected because there are no jobs?

At what point will it become clear even to thick-headed economists, with their ideological blinders held in place by money from the rich, that money only produces income when it can be put to productive use?